China’s trillion-dollar asset-management market opens wider this week, forcing BlackRock, Vanguard Group and other global firms to make a strategic decision—go it alone or work with an entrenched local partner.
While the further liberalisation of the investment banking and money management industries in China has been overshadowed by the coronavirus crisis, wealth firms are nonetheless laying out plans to tap a market poised to reach $30 trillion in assets by 2023.
Global wealth firms can start applying for licences to set up wholly-owned mutual fund management firms for the first time from 1 April 2020.
Other options include boosting ownership of existing joint venture partnerships to 100 per cent, as JPMorgan Chase & Co. plans to do.
The China Banking and Insurance Regulatory Commission has been encouraging foreign asset managers to work with the wealth management subsidiaries of Chinese banks or insurers. Global players are expected to bring to the table product design expertise, while the Chinese firms provide a vast distribution network and relationship managers.
BlackRock is in talks with China Construction Bank Corporation to set up a joint venture for a wealth management subsidiary. Goldman Sachs Group has discussed a similar structure.
“Chinese banks have great distribution channels and client relationships, but many of them lack the expertise to create long-term investment products with sufficient risk controls, so they would benefit from working with foreign players,” said Harry Qin, a partner at PricewaterhouseCoopers.
China is also planning to allow applications for foreign-owned fund management licences that would grant control of mutual funds. At least six firms, including BlackRock and Vanguard, have told regulators they intend to apply to the Chinese securities watchdog.
China regulators are trying to shift consumers away from shadow banking products underpinned by loans sitting outside banks’ balance sheets. that is creating an opportunity for mutual funds that are expected to increase assets by more than 10 per cent annually.
Several investment banks already have mutual fund joint ventures in China. With foreign companies now free to control operations on the ground, it’s unclear whether partnerships still provide value.
JPMorgan is seeking 100 per cent ownership of its fund management joint venture, people familiar have said. The New York-based bank is in talks with Shanghai International Trust Company to acquire its stake in China International Fund Management, which oversees CNY 150 billion ($21 billion).
Vanguard meanwhile has a robo-advisory joint venture with Jack Ma’s Ant Financial Services Group that started providing mutual-fund recommendations to Alipay app users in late March 2020.